Reacting to risk with real options: Valuation of managerial flexibility in IT projects

C.A.R. Hilhorst

    Research output: ThesisDoctoral Thesis

    1147 Downloads (Pure)

    Abstract

    Since flexibility is a critical success factor in relation to the management and design of IT investments, and understanding flexibility is a difficult issue, it is important to explore how firms build flexibility into their IT investment decisions. This dissertation investigates how managerial flexibility, as a response to risks, impacts IT project valuation. The dissertation attempts to answer this question by conducting three separate studies using a real options perspective. Firstly, we explore whether managerial flexibility in IT investment decisions is recognized in practice by conducting exploratory case study research. Secondly, we investigate how managerial flexibility in IT projects can be valued. We develop a theoretical decision-making model which deals with both financial and non-financial IT project valuation criteria and apply the model in a case study. Thirdly, we take a qualitative perspective on the management of managerial flexibility in relation to IT project risk. We empirically test the effects of specific risks on the valuation of real options in IT project decisions in an experimental setting. The primary contribution of this dissertation is to provide evidence that managers differentially assess the relative value of different types of options when controlling IT project risks. The relative value that IT professionals place on various real options is both driven by both the intrinsic real options value and by risk factors associated with an IT project. Their assessment generally follows real options-based risk management reasoning.
    Original languageEnglish
    QualificationDoctor of Philosophy
    Awarding Institution
    • Tilburg University
    Supervisors/Advisors
    • Smits, Martin, Co-promotor
    • Ribbers, Piet, Promotor
    • van Heck, H.W.G.M., Promotor, External person
    Award date6 Mar 2009
    Place of PublicationTilburg University
    Publisher
    Print ISBNs9789056682347
    Publication statusPublished - 2009

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